Financing and Marketing Management

Unit 11 - Elasticity

11.1. Meaning of elasticity
The degree to which a price change for an item results from a unit change in supply or a unit change in demand is called elasticity. In other words elasticity is a measure of how much the demand for a good or services increases or decreases in response to change in price. A necessary good such as water or a service such as medical care might have low elasticity, since demand for such goods and services remains relatively stable at nearly any price.
High elasticity of supply means that as prices rise for a product, more of that product will be made available to maximize profit based on increased demand.